Shanghai shares tumble on central bank's statement

Shanghai stocks plunged this morning as financial institutions continued to suffer a liquidity squeeze while the central bank held back from bailing them out.

The key Shanghai Composite Index lost 62.32 points, or 3 percent, to 2,010.77. Turnover was 41.3 billion yuan (US$6.8 billion) by the noon break.

"Investors turned pessimistic as market liquidity remained tight while market fundamentals were weak," said Ping An Securities in a report today.

"Interbank market liquidity is expected to get tighter at the end of the quarter," Ping An said.

Industrial Bank Co slumped 8.4 percent to 14.14 yuan. China Minsheng Banking Corp dived 9.4 percent to 8.56 yuan. Shanghai Pudong Development Bank Co dropped 6 percent to 11 yuan. China Merchants Bank fell 6.1 percent to 11 yuan.

Investors were further disappointed after the People's Bank of China, the central bank, said today that the liquidity situation in China's banking system is still reasonable and urged commercial banks to improve liquidity management, meaning it will not inject cash into the tight market in the near term.

Property developers also declined. Poly Real Estate, China's second-largest home builder, skidded 5.7 percent to 9.99 yuan. Gemdale Corporation plunged 8.6 percent to 6.09 yuan.